A Broader Perspective Required
Many countries, companies and other organisations have announced commitments to achieve “net zero” emissions by 2025-2050. What does this term actually mean? According to the World Resources Institute, Net Zero means “achieving a balance between the amount of emissions produced and those removed from the atmosphere in order to reduce global warming”. The removal can be achieved in several ways, including phasing out coal plants, investments in clean energy, decarbonising steel, cement and aviation and reducing food loss and waste. But what about broader measures of climate change that are not encompassed by Net Zero? What about natural capital impacts such as fresh water usage, air and water pollution, land use change, biodiversity and waste management? Net Zero is too limited a concept to define the actions we need to take to address a complex problem that has very broad consequences globally and impacts us all. A different, wider perspective is necessary.
“Avoid, mitigate and re-compensate” natural resources, including energy use, is the primary concept discussed in the International Finance Corporation’s (IFC) published investment principles. “Avoid” refers to energy conservation, using energy when you “need to”. The cleanest form of energy is the energy you do not use. However, if use cannot be avoided, mitigate its impact through energy efficiency measures, reducing waste in the system and other appropriate actions. Only after these two measures are taken, should you look at re-compensating fossil fuel energy through renewables. To achieve “net zero” by setting up solar plants, without examining manufacturing processes for improving energy efficiency, is simply not good enough.
The Intergovernmental Panel on Climate Change (IPCC) released a report in August 2021 highlighting the seriousness of greenhouse gas (GHG) impacts and the urgency for action on reduction of CO2 emission. The current level of GHG stock at 413 PPM (parts per million) is the highest in human history and has serious implications for climate change. Recent floods in Europe, water and power shortages in Brazil, raging forest fires in the US and Australia, rising sea levels in certain coastal cities are just some examples of nature’s fury. The costs of inaction are very high. Temperature increases in excess of 1.5 degrees Celsius impact the global water cycle, carbon cycles, biodiversity and has serious effects on human health. There are no geographic boundaries with respect to climate change effects. We are all in it together!
We must think of energy intensity and energy inclusion as important aspects of the debate on climate change. Through accelerated adoption of renewables, the carbon intensity of the energy mix can be shifted away from fossil fuels. The resource intensity aspect is determined by the stage of economic development, with developing countries needing higher levels of resources as the economy grows and much needed infrastructure is built. When one discusses energy consumption, Scope I (direct) Scope 2 (emissions related to energy use) and Scope 3 (upstream and downstream effects) also need to be considered. Outsourcing emissions to countries such as China without changing consumption patterns is also not an effective solution.
India’s growth trajectory over the next two decades will require a high level of resources and energy. India has already taken many key steps to reduce the carbon intensity of the energy mix. As of February 2021, 38 GW of solar capacity has been built, representing over 10 per cent of the total grid capacity of 380 GW. This is only expected to grow with the ambitious growth programmes announced by the government. The recent announcement of achieving 20 per cent blending of ethanol in petrol by 2025 will also accelerate the move away from fossil fuels in India.
The SATAT (Sustainable Alternative Towards Affordable Transportation) programme is also a strong policy initiative of the government, to enable waste to energy acceleration using agricultural and municipal waste to produce BioCNG. While hydrogen may be a few years away from commercialisation, costs of green hydrogen equipment (electrolyser and PEM) are dropping rapidly, suggesting that within five years we may see hydrogen as a mainstream fuel in India.
On a combined basis, through various measures, the government is playing a very influential role in energy transition in India, moving from fossil fuel dominance to a more Atmanirbhar Bharat, using renewable energy.
When one studies energy transitions around the world, France (nuclear), Denmark (wind energy), Brazil (bio-fuels), Iceland (geothermal), one key takeaway is that these transitions take decades and are a result of consistent efforts of governments, private sector and consumers working towards a common goal. I am confident that India is on its journey to shift away from fossil fuels, which will only accelerate in the coming years. While evaluating energy transitions, costs cannot be the only consideration. Achieving energy security and energy inclusion are equally important objectives. Today, India depends on fossil fuel imports for 81 per cent of its mobility related energy needs. By increasing the share of renewables in the energy mix, this can be reduced significantly, resulting in savings in foreign exchange and reduced geopolitical risk. Through rooftop solar and mini grids, we can enhance the goal of “energy for all” – an equally important objective. As new solutions and technologies are adopted, costs are expected to drop over time through economies of scale and increased focus on technology improvements.
The current focus on GHG emissions at the cost of seeing the broader picture of natural capital impacts is insufficient to meet climate challenges. We must view the impacts from a broader natural capital lens, focusing on other factors such as air pollution, land and water pollution, freshwater usage, land use change and waste management, all of which form an integral part of the natural capital framework. We are reaching tipping points with respect to planetary boundaries and if urgent action is not taken, the results can be catastrophic. Corporations need to consider the externalities of their operations, adopting a stakeholder approach rather than a narrow shareholder approach in their decision framework. We are in the Anthropocene age and have the power to influence outcomes. The question is: Will we act fast enough and decisively enough to turn the situation around and make a positive contribution, individually and collectively to save our future? I certainly hope so.
The author is Managing Partner of Peak Venture Advisors, a sustainability-focused venture capital firm, investing across new energy, water, agriculture and climate tech. He teaches an MBA course at Ahmedabad University, titled ‘Sustainability, Business and Society’.
